Why East Coast VCs are better protected if the market slips

A new trends report published by the law firm Cooley report suggests that the venture market remains largely healthy for now. In the fourth quarter, for example, Cooley handled 187 “disclosable” (versus stealth) deals that represented more than $2.7 billion of invested capital. That’s 18 percent more deals than it closed in the fourth quarter of 2015 — though the amount of money involved fell 23 percent of the year-earlier period. (VCs were writing smaller checks into a greater number of startups.)

Of slightly more interest to us were the deal terms involved in these fundings, some of which suggest that East Coast VCs have more safeguards than their West Coast peers if the market changes.

We talked with the study’s author, Cooley attorney Dave Young, about what he found and what it might mean.

TC: This report seems pretty positive on its face.

DY: I think it shows a surprisingly strong, healthy venture market. In 2015, there was this sense that maybe things were getting overheated, with nontraditional investors coming in and leading later stage rounds in companies that hadn’t proven themselves yet.